How should a government intervene in a digital economy for controlling inflation?
Hussain SyedGowhor
Bangladesh Civil Service (Postal Cadre) Vice Principal, Postal Academy, Rajshahi, 6203, Bangladesh
Keywords: inflation; governmental intervention; cashless model; digital economy; system architecture; pricing policy instruments; implementation challenges
Abstract
In order to save an economy from the detrimental effect of inflation, the government of that economy must make a full transition from the paper money based traditional economic system to an electronic money based digital economic system. This article proposes a system by which a government can control inflation in a digital economy. The central argument of the article is that a government fails to trace myriad transactions in an economy and hence have to leave the matter of price determination in the hand of the automatic interaction of demand and supply. However, as the digital technologies now allow for tracking every transaction, a government can get involved actively and intensively in the matter of price determination through a central price control system. The article describes the system architecture along with how it works and how the mutual interaction takes place among the various components of the system. It also discusses the major challenges in implementing the proposed system. Finally, it delineates the pricing policy instruments that may be used in overcoming the challenges of the proposed system. The system holds an iconoclastic view of the traditional economic system by proposing the abolition of paper money, price determination by the mutual interaction between demand and supply, the existence of invisible hand, and the laissez faire policy of a government in an economy. Although the idea seems to be utopian and devoid of practical sense at this stage of economic reality, it will make sense in the near future when only digital currency will exist as the sole legal tender money in a digital economy.
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